[Federal Register Volume 65, Number 48 (Friday, March 10, 2000)]
[Rules and Regulations]
[Pages 12938-12943]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 00-5823]


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COMMODITY FUTURES TRADING COMMISSION

17 CFR Part 4

RIN 3038-AB48


Exemption From Registration as a Commodity Trading Advisor

AGENCY: Commodity Futures Trading Commission.

ACTION: Final rule.

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SUMMARY: The Commodity Futures Trading Commission has amended 
Commission Rule 4.14 to create an exemption from the Commodity Exchange 
Act's registration requirements for commodity trading advisors that 
provide standardized advice by means of media such as newsletters, 
prerecorded telephone newslines, Internet web sites, and non-customized 
computer software.

[[Page 12939]]


DATES: March 10, 2000.

FOR FURTHER INFORMATION CONTACT: J. Douglas Richards, Deputy General 
Counsel; Martin White, Attorney; or Michael J. Garawski, Attorney at 
(202) 418-5120.

SUPPLEMENTARY INFORMATION:

I. Background

    The Commodity Futures Trading Commission (``Commission'') is 
adopting CFTC Rule 4.14(a)(9), which exempts certain commodity trading 
advisors (``CTAs'') from Section 4m(1) of the Commodity Exchange Act 
(``CEA'' or ``Act''), 7 U.S.C. 6m(1) (1994). Section 4m(1) requires 
CTAs to register with the Commission. The exemption adopted today is 
intended to apply to CTAs that provide standardized commodity trading 
advice by means of media such as newsletters, prerecorded telephone 
newslines, Internet web sites, and non-customized computer software.\1\ 
For purposes of convenience, these CTAs will be referred to as 
``Section 4.14(a)(9) CTAs.''\2\
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    \1\In this final rulemaking, the term ``commodity trading 
advice'' refers to advice with respect to trading in a ``commodity 
interest,'' as defined in Commission Rule 3.1(f), 17 CFR 3.1(f).
    \2\``Section 4.14(a)(9) is a reference to CFTC Rule 4.1(a)(9), 
to be codified at 17 CFR 4.14(a)(9).
    A person that provides commodity trading advice by means of 
newsletters, Internet web sites, or similar means falls within the 
statutory definition of ``commodity trading advisor'' unless the 
person is a ``publisher or producer of print or electronic data of 
general and regular dissemination'' and the furnishing of commodity 
trading advice is ``solely incidental to the conduct of their 
business or profession.'' See Sections 1a(5)(B) and (C) of the Act, 
7 U.S.C. 1a(5)(B) and (C) (1994); In re R&W Technical Services, 
Ltd., [Current Transfer Binder] Comm. Fut. L. Rep.: (CCH) 
para.27,582 (CFTC Mar. 16, 1999); In re Armstrong, [1992-1994 
Transfer Binderl Comm. Fut. L. Rep. (CCH) para.25,657 (CFTC Feb. 8, 
1993).
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    Over the last several years, the Commission has been involved in 
several litigated cases that address whether CTAs that provide advice 
through newsletters, Internet web sites, or similar means can be 
required to register under Section 4m(1) of the CEA. In two of those 
cases, Taucher v. Born, 53 F. Supp. 2d 464 (D.D.C. 1999), appeal 
pending, No. 99-5293 (D.C. Cir.) and Commodity Trend Service v. CFTC, 
No. 97 C 2362 (N.D. III. Sept. 28, 1999), appeals pending, No. 99-4142 
(7th Cir.), federal district courts held that the Section 4m(1) 
registration requirement constitutes an unconstitutional prior 
restraint in violation of the First Amendment as applied to the 
plaintiffs.\3\ In both cases, the plaintiffs provided only standardized 
commodity trading advice through a variety of media, including Internet 
web sites, computer software, voice recordings accessible by telephone, 
e-mails, facsimiles, and periodicals. Moreover, the district courts 
found in these cases that the plaintiffs did not have discretionary 
control over their clients' accounts, did not provide advice tailored 
to the financial situation of any specific client, and had no personal 
contact with their clients. All of the information provided to each 
client was identical.
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    \3\Both district courts relied on Lowe v. SEC, 472 U.S. 181 
(1985), in which the Supreme Court held that the Investment Advisers 
Act of 1940, which regulates investment advisers in the securities 
industry, should be interpreted to apply only to persons who provide 
personalized advice. The district courts relied primarily on the 
concurring opinion in Lowe, which rested on constitutional grounds.
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    The Commission has not itself determined that applying Section 
4m(1) to Section 4.14(a)(9) CTAs represent a complete and accurate 
statement of the constitutional limits of Congress's power with respect 
to the regulation of Section 4.14(a)(9) CTAs. The Commission has 
nevertheless determined that it is appropriate to exempt Section 
4.14(a)(9) CTAs from registration.
    An implicit purpose of the Act is to achieve a regulatory scheme 
that is consistent with the public interest and that promotes just and 
equitable principles of trade. This purpose is evident in provisions 
dealing with the CTA registration scheme, including Sections 41, 4n(1), 
4p, 8a(8), as well as other provisions of the Act (see, e.g., Sections 
4(c), 4c, 4g, 4j(a)(5)(C), 5, 6(f), 15, 17). Consistent with that, the 
Act reflects a corollary purpose that the Commission continue to refine 
its regulatory framework, including its registration scheme, where 
appropriate in light of other purposes of the Act. See, e.g., Sections 
3, 4b, 4k, 4n, 4o. The rule adopted today advances these purposes.
    Taucher and CTS have created legal uncertainty as to whether 
Section 4.14(a)(9) CTAs may be required to register with the 
Commission.\4\ Absent a Supreme Court decision on the issue, continued 
litigation is unlikely to eliminate this uncertainty for a considerable 
period of time. Moreover, litigation of First Amendment issues has 
required the expenditure of considerable resources by the Commission 
and, in some instances, has complicated the Commission's investigation 
and prosecution of fraud by CTAs.
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    \4\Significantly, CTS and Taucher left the Commission's fraud 
jurisdiction intact.
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    Furthermore, whatever the courts may determine to be the precise 
constitutional limits of Congressional authority in this area, the 
Commission believes that minimizing impact on speech, other than false, 
deceptive or misleading speech, is a relevant policy consideration in 
determining the Commission's regulatory approach toward CTAs whose 
relationship with their clients is limited to standardized advice 
through media such as newsletters, prerecorded telephone newslines, 
Internet web sites, and non-customized computer software.
    On December 2, 1999, the Commission proposed to exempt from Section 
4m1) of the CEA certain CTAs that are not engaged in the type of 
advisory activities specified in proposed Section 4.14(a)(9) and 
invited comments. 64 FR 68304 (Dec. 7, 1999). The Commission received 
eight comment letters on this proposal: One from a bar association 
committee on futures regulation; two from nonprofit legal advocacy 
groups; one from a trade association; three from clients of CTAs; and 
one from a member of the general public. All generally supported the 
adoption of a rule like CFTC Rule 4.14(a)(9). In light of comments 
received on that proposed rule, the Commission is adopting a modified 
version of the proposed rule.

II. CFTC Rule 4.14(a)(9)

    CFTC Rule 4.14(a)(9) (to be codified at 17 CFR 4.14(a)(9)) adds a 
new paragraph to Commission Rule 4.14 to create an additional exemption 
from registration for certain CTAs. The new exemption is expressed in 
negative terms: the rule exempts CTAs that are not engaged in the types 
of advisory activities specified in the new paragraph. A CTA must meet 
both of the specified conditions to qualify for the proposed exemption.
    Paragraph 4.14(a)(9)(i) provides that, to quality for the 
exemption, a CTA may not direct client accounts. As defined by 
Commission Rule 4.10(f), ``[d]irect, as used in the context of trading 
commodity interest accounts, refers to agreements whereby a person is 
authorized to cause transactions to be effected for a client's 
commodity interest account without the client's specific 
authorization.'' The granting of such authority creates a business 
relationship between the CTA and the client that goes beyond speech. 
Registration of CTAs that direct client accounts thus raises no First 
Amendment issue.\5\
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    \5\One commenter, expressed a similar opinion, stating that 
paragraph (a)(9)(i) does not raise First Amendment concerns.
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    Paragraph 4.14(a)(9)(ii) also provides that, to qualify for the 
exemption, a CTA may not provide commodity trading

[[Page 12940]]

advice based on, or tailored to, the commodity interest or cash market 
positions or other circumstances or characteristics of particular 
clients. A CTA that provides this kind of advice carries out a function 
comparable to that of a traditional professional. See Lowe v. SEC, 472 
U.S. 181, 232-33 (1985) (White, J., concurring). This provision is 
intended to preserve the registration requirement for CTAs whose 
commodity trading advice depends on and reflects information concerning 
its advisee(s), such as information concerning a particular commodity 
interest account, particular commodity interest trading activity, and/
or other similar types of information. Moreover, so long as the CTA's 
advice is based on or tailored to such information, the CTA remains 
required to register even if it gives the same advice to groups of 
similarly situated clients.
    Retaining the registration scheme for those that engage in the 
activities described by Rule 4.14(a)(9) is justified because the nature 
of these activities creates a professional relationship. A client that 
provides a power of attorney to trade his or her account, or that 
receives commodity trading advice that is based on or tailored to his 
or her circumstances, will very likely substitute the CTA's expertise 
for his or her own judgment and use the advice as a direct basis for 
action.
    The Commission received several comments concerning proposed 
paragraph 4.14(a)(9)(ii). One commenter suggested that the Commission 
adopt a proviso to the rule that would, in effect, narrow the 
activities described in paragraph (ii), thereby expanding the scope of 
the exemption. The commenter maintained that a CTA that provides advice 
via a web site that is interactive in nature and that requires a client 
to select among inquiry paths or categories of information should be 
exempt from the registration requirement. The commenter suggested that 
the Rule adopt a proviso that explains that nothing in paragraph (9) be 
construed to prohibit the use of electronic or other interactive 
exchanges between clients and advisors that do not include 
individualized investment advice.
    A second commenter voiced a similar concern and suggested that 
proposed Rule 4.14(a)(9)(ii) be narrowed to maintain the registration 
requirement only for CTAs that provide commodity trading advice based 
on, or tailored to, the commodity interest or cash market positions or 
other circumstances or characteristics of particular clients ``with 
whose circumstances or characteristics the CTA is directly 
acquainted.''
    The Commission has determined not to adopt these proposals.\6\ 
These commenters' suggestions fail to reflect that the medium through 
which advice is communicated is, for the most part, not relevant to 
whether the CTA can be said to be ``exercis[ing] judgment on behalf on 
the client in the light of the client's individual needs and 
circumstances.'' See Lowe, 472 U.S. at 232 (J. White, concurring). 
Instead, the Commission agrees with the statement of another commenter 
that ``the new rule * * * should emphasize that the exemption is based 
on the nature of the advice that is provided, regardless of how it is 
communicated to the client.''\7\ As explained by the district court in 
Taucher, ``[i]n today's technologically advanced society a professional 
can exercise judgment on behalf of another without ever having 
`personal' [or direct] contact.''\8\
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    \6\The Commission notes that paragraph (a)(9)(ii), as 
interpreted in Example C below, substantially accomplishes the 
result intended by the proviso suggested by one commenter.
    \7\In a borderline case as to whether advice is ``based on or 
tailored to'' within the meaning of Section (a)(9)(ii), however, the 
context of the advice might be taken into account. For example, in 
such a borderline case, if the advice is provided in a book or a 
periodical, that factor may weigh against a finding that the CTA is 
providing advice ``based on or tailored to'' the client's 
characteristics, since such modes of communication are ordinarily 
used as sources of information and ideas that the reader assimilates 
into his or her own thought process. On the other hand, if the 
advice is provided to a particular client in a face-to-face 
communication or over the telephone, that factor may weigh in favor 
of a finding that the CTA's advice is ``based on or tailored to'' 
the customer's characteristics, since such a context suggests that 
the CTA is being responsive to the client's particular needs.
    \8\Taucher v. Born, No. 97-1711 (RMU) (Jan. 14, 1999) (denying 
plaintiff's motion for summary judgment). In its later decision 
finding that the plaintiff CTAs did not ``exercise judgment'' on 
behalf of their clients, the district court found that the 
plaintiffs had no personal contact with their customers. The court, 
however, did not rely exclusively on this factor, which was only one 
of several circumstances supporting the court's finding. Taucher, 53 
F. Supp. 2d at 478. In light of the court's statement made in 
denying the motion for summary judgment, its position appear to be 
that lack of personal contacts is a factor, but not a dispositive 
one, in determining whether the CTA is exercising judgment on behalf 
of its clients.
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    Given the specific comments received on paragraph 4.14(a)(9)(ii), 
however, further clarity as to the scope of that paragraph may be 
desirable. Section III of this preamble provides examples of how Rule 
4.14(a)(9)(ii) would be applied in specific situations. To the extent 
that the examples do not resolve how the Commission would apply the new 
rule to other specific situations, such situations are best addressed 
in response to specific facts and circumstances.\9\
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    \9\The Commission uses various means to assess the applicability 
of a rule in light of specific factual situations, such as 
determinations made in its adjudicated decisions. Commission staff 
also provides interpretative guidance, such as issuing 
interpretative letters or responding to requests for no-action 
relief.
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    The Commission has decided not to adopt proposed paragraph 
4.14(a)(9)(iii), which provided that a CTA would qualify for the 
exemption only if it does not provide commodity trading advice through 
personally interactive communications with individual clients, such as 
face-to-face conversations, telephone conversations, or electronic mail 
exchanges between individuals. In the Notice of Proposed Rulemaking, 
the Commission explained that the use of such means of communications 
implies that the advisor is giving advice in the context of a 
relationship with the client that is more personal than the remote and 
standardized relationship between the publisher of a newsletter or non-
customized software and its readers or users.
    Several commenters opposed the adoption of proposed paragraph 
(a)(9)(iii). One commenter anticipated two serious problems in 
implementing proposed paragraph (a)(9)(iii). First, the rapid 
development of communications technology may require periodic 
reexamination of the language of paragraph (iii), and second, the 
emphasis in paragraph (iii) on the method of communication would 
complicate policing the terms of the exemption.
    Other commenters questioned whether paragraph (a)(9)(iii) would be 
constitutionally permissible. One commenter opined that the references 
in proposed paragraph (a)(9)(iii) to the mode of communication are not 
appropriate given the recent judicial decisions in this area. 
Similarly, other commenters opposed proposed paragraph (a)(9)(iii) on 
the ground that it would be inconsistent with the First Amendment, 
except in cases where the advice is given in light of the client's 
individual needs and circumstances.
    The Commission has not determined that the application of proposed 
paragraph (a)(9)(iii) would violate the Constitution under any 
particular circumstances. The Commission notes that none of the cases 
upon which the commentators rely for their constitutional positions 
involved the ``interactive communications'' situation involved in 
paragraph (a)(9)(iii). Rather, those cases involved only the provision 
of advice in a non-interactive setting,

[[Page 12941]]

such as through periodicals, books, newsletters, or software 
programs.\10\
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    \10\These cases include Lowe v. SEC, 472 U.S. 181 (1985), and 
the Taucher and CTS district court decisions.
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    Nevertheless, the Commission has decided not to adopt proposed 
paragraph 4.14(a)(9)(iii). By this rulemaking, the Commission intends 
to reduce the legal uncertainty created by the First Amendment 
decisions in this area and to curtail the impediments that such First 
Amendment litigation imposes on the Commission's enforcement of the 
antifraud provisions of the CEA. Considering the comments received, 
adoption of proposed paragraph (a)(9)(iii) might undermine the 
accomplishment of those purposes.\11\
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    \11\In light of the decision not to adopt proposed paragraph 
(a)(9)(iii), the Commission need not address whether implementation 
problems would provide an independent reason not to adopt that 
paragraph.
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    As explained in the Notice of Proposed Rulemaking, the Commission 
intends that a CTA who manages a client's trading under some type of 
informal arrangement be required to register even if the CTA is not 
authorized to effect transactions without the client's specific 
authorization, and therefore does not ``direct'' the client's accounts. 
In the Notice of Proposed Rulemaking, the Commission solicited comments 
on whether a separate paragraph dealing with CTAs that manage their 
clients' trading under informal arrangements would be necessary to 
realize this intention.
    One commenter supported clarifying the breadth of the proposed rule 
to retain the registration requirement for CTAs that have informal 
arrangements with clients and that perform any of the activities 
outlined in the rule. Although the commenter did not advocate defining 
the meaning of ``informal arrangements,'' it proposed that the 
introductory language of Section 4.14(a)(9) be expanded to add the 
words ``directly or indirectly'' after the word ``engage.''\12\ The 
Commission has decided not to adopt the commenter's suggested language 
in Rule 4.14(a)(9) and instead to rely on the language of paragraph 
4.14(a)(9)(ii) to cover CTAs that informally manage their customers' 
trading.
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    \12\The commenter's proposed introductory language would read: 
``A person is not required to register under the Act as a commodity 
trading advisor if * * * [i]t does not engage, directly or 
indirectly, in any of the following activities * * *''
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    Any CTA that meets the conditions of Rule 4.14(a)(9) is no longer 
required to register with the Commission as a requirement for doing 
business as a CTA. Such a CTA, unless it chooses to register 
voluntarily, also is now exempt from the various regulatory 
requirements set forth in the CEA and the Commission's rules that, by 
their terms, apply only to registrants or persons required to be 
registered. For example, an exempt CTA is not subject to the 
recordkeeping and production requirements of Section 4n(3)(A) of the 
CEA and Commission Rule 4.33, or the ethics training requirement of 
Section 4p(b) of the CEA. Moreover, an exempt CTA is not subject to the 
CFTC's reparations jurisdiction under Section 14 of the CEA.\13\
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    \13\In response to a question posed in the Notice of Proposed 
Rulemaking, one commenter stated that exempt CTAs should not be 
subject to the recordkeeping, production or ethics training 
requirements because to do so would raise ``significant 
constitutional issues.'' The Commission has not determined that 
applying these requirements would violate the Constitution. The 
Commission, however, agrees that CTAs that are exempt from 
registration under Rule 4.14(a)(9) should not be subject to 
regulatory requirements like these, which apply only to registered 
CTAs.
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    An exempt CTA is still subject to those provisions of the CEA and 
the Commission's rules that, by their terms, apply to CTAs without 
regard to registration. These include Section 4o of the CEA, which 
prohibits fraud by CTAs; Commission Rule 4.30, which, broadly speaking, 
prohibits CTAs from handling clients' funds; Commission Rule 4.41(a), 
which prohibits deceptive advertising by CTAs; and Commission Rule 
4.41(b), which requires representations concerning simulated or 
hypothetical performance results by CTAs to be accompanied by 
disclosures describing the limitations of such results as an indicator 
of actual performance. Exempt CTAs also are subject to those provisions 
of the CEA that apply to any person, including, for example, Section 4b 
of the CEA, which is the Act's general anti-fraud provision. Similarly, 
the proposed exemption does not alter the duty of a Section 4.14(a)(9) 
CTA to register with the Commission in a capacity other than as a CTA, 
if the CTA, in addition to its advisory activities, engages in other 
business activities that require such registration.
    A CTA exempt under rule 4.14(a)(9) that wishes to apply for 
registration or retain its current registration may do so. Pursuant to 
Rule 4.14(c), a CTA that registers voluntarily is subject to those 
provisions of the Act and the Commission's regulations that apply to 
registered CTAs (i.e., the disclosure requirements of Rules 4.31, 4.35 
and 4.36, and the recordkeeping requirements of Rule 4.33) as if it 
were not exempt from registration. The decision to register voluntarily 
also would subject the CTA to ethics training requirements and the 
Commission's reparations jurisdiction.

III. Examples\14\

    In  order to convey the intent of the exemption that we adopt 
today, the Commission offers the following illustrative examples:\15\
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    \14\The following examples of the application of Rule 4.14(a)(9) 
supercede the examples provided in the Notice of Proposed 
Rulemaking. Examples are illustrative and not intended to be 
statements of law. As noted above, persons are free to seek advice 
regarding their specific activities.
    \15\In each of the following examples, the CTA does not have 
powers of attorney from any of its clients to trade accounts. In 
addition, the CTA in each example remains subject to requirements of 
the Act and the Commission's regulations that apply to all CTAs 
without regard to registration, such as Section 4o of the Act and 
Commission Rules 4.30, 4.41(a) and 4.41(b), as well as to provisions 
that apply to any person, such as Section 4b of the Act.
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    A. A CTA provides commodity trading advice only through 
newsletters, books and periodicals. The advice includes specific 
recommendations, such as recommendations to buy or sell specific 
futures contracts should a particular price level be reached. 
Recipients of publications all receive the same advice. Under Rule 
4.14(a)(9), this CTA is exempt from the Section 4m registration 
requirement.
    B. A CTA provides specific commodity trading advice through e-
mails, facsimiles, an Internet web site, telephone calls and face-to-
face meetings with customers. The advice is based on a computerized 
trading system, which also is available for purchase and use on a 
personal computer. Such advice is provided on a daily basis and is 
reactive to the latest market activity. The advice consists only of an 
instruction to buy or sell a futures contract and where, if at all, to 
place a stop order. The CTA's clients all receive the same advice. 
Under Rule 4.14(a)(9), this CTA is exempt from the Section 4m 
registration requirement.
    C. A CTA provides commodity trading advice through an Internet web 
site. The web site requires the user to indicate whether he or she has 
a preference for trading agricultural futures contracts or financial 
futures contracts. Users who indicate that their preference is 
agricultural futures contracts receive different advice from those who 
indicate that financial futures contracts are their preference. The 
CTA's advice is not ``based on, or tailored to, the commodity interest 
or cash market positions or other circumstances or characteristics of 
particular clients,'' within the meaning of Rule 4.14(a)(9)(ii). 
Rather, the CTA is merely allowing its clients to select which advisory 
services they wish to

[[Page 12942]]

purchase. Therefore, this CTA is exempt from the Section 4m 
registration requirement under Rule 4.14(a)(9).
    D. A CTA conducts seminars at which it teaches attendees how to 
trade commodity futures contracts aided by a software program that the 
CTA sells. After the seminar, the CTA invites seminar attendees to 
participate in a question-and-answer session. In response to questions, 
the CTA provides commodity trading advice without asking or receiving 
information about the personal characteristics of the attendees. Such 
advice is not ``based on, or tailored to, the commodity interest or 
cash market positions or other circumstances or characteristics of 
particular clients,'' within the meaning of Rule 4.14(a)(9)(ii). 
Consequently, this CTA is exempt from the Section 4m registration 
requirement.
    E. A CTA conducts seminars at which it teaches attendees how to 
trade commodity futures contracts aided by a software program that the 
CTA sells. Before each seminar commences, the CTA polls the attendees 
to discover their level of ability and knowledge. The CTA presents a 
more advanced seminar for classes that have a higher degree of 
experience. Because such advice is not ``based on, or tailored to, the 
commodity interest or cash market positions or other circumstances or 
characteristics of particular clients,'' within the meaning of Rule 
4.14(a)(9)(ii), this CTA is exempt from the Section 4m registration 
requirement.
    F. A CTA provides commodity trading advice only through facsimile 
messages, without further discussion with its clients. Before advising 
any client, the CTA gathers current information about the client, such 
as information about his or her net assets and liabilities, annual 
income, annual expenses, imminent large purchases, tolerance for risk, 
purposes for trading, investment goals and expectations, preferred 
contracts for trading, any existing futures positions, and other 
current investments. The CTA's advice is different for different 
clients, depending on their profile, but the CTA sends similar advice 
to groups of clients with similar profiles. Under Rule 4.14(a)(9)(ii), 
this CTA provides commodity trading advice ``based on, or tailored to, 
the commodity interest or cash market positions or other circumstances 
or characteristics of particular clients'' and, consequently, is not 
exempt from the registration requirement.
    G. A CTA gives seminars on commodity interest trading. During the 
seminar, the CTA takes questions from the attendees concerning the 
trades that the CTA recommends for the upcoming week. Before responding 
to the question of an attendee, the CTA asks the attendee for specific 
information about him or herself, such as the types of information 
listed in Example F. The CTA provides different recommendations to 
different attendees, based on the information provided. Under Rule 
4.14(a)(9)(ii), this CTA provides commodity trading advice ``based on, 
or tailored to, the commodity interest or cash market positions or 
other circumstances or characteristics of particular clients'' and 
therefore is not exempt from the registration requirement.
    H. A CTA monitors a client's trading positions and amount of margin 
in the client's account. Based on that information, along with general 
technical and fundamental market information, the CTA gives the client 
commodity trading advice. Because he provides commodity trading advice 
``based on, or tailored to, the commodity interest or cash market 
positions or other circumstances or characteristics of particular 
clients,'' this CTA is not exempt from the registration requirement 
under Rule 4.14(a)(9)(ii).

 IV. Statutory Authority

    Pursuant to Section 8a(5) of the CEA, 7 U.S.C. 12a(5), the 
Commission has statutory authority to promulgate the proposed rule. As 
explained above, this rule is consistent with the legislative purposes 
of the CEA.
    In the Notice of Proposed Rulemaking, the Commission indicated that 
it also would rely on Section 4(c)(1) of the Act, 7 U.S.C. 6(c)(1), as 
authority to adopt Rule 4.14(a)(9). Upon further consideration, the 
Commission has determined that reliance on Section 4(c) is unnecessary. 
The Commission previously has relied upon its rulemaking power, as 
provided in Section 8a(5), to exempt CTAs from the registration 
requirement. The authority citation for Part 4 of the Commission's 
rules, therefore, is unchanged.

V. Related Matters

A. Regulatory Flexibility Act

    The Regulatory Flexibility Act (``RFA''), 5 U.S.C. 601 et seq., 
requires that agencies, in proposing rules, consider the impact of 
those rules on small entities. The Commission has previously 
established certain definitions of ``small entities'' to be used by the 
Commission in evaluating the impact of its rules on such entities in 
accordance with the RFA.\16\ With respect to CTAs, the Commission has 
stated that it would evaluate within the context of a particular rule 
proposal whether all or some affected CTAs would be considered to be 
small entities and, if so, the economic impact on them of any rule.
    As the Commission noted when proposing the rule, some of the CTAs 
that would be affected by Rule 4.14(a)(9) could reasonably be 
considered to be small entities. The rule amendment adopted herein, 
however, will reduce or remove existing economic burdens. Moreover, the 
registration requirements that will be affected by the proposed rule 
involve only minimal economic burdens.
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    \16\47 FR 18618-21 (Apr. 30, 1982).
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B. Paperwork Reduction Act

    Rule 4.14(a)(9) affects information collection requirements. As 
required by the Paperwork Reduction Act of 1995, the Commission has 
submitted a copy of Rule 4.14(a)(9) to the Office of Management and 
Budget (OMB) for its review. 44 U.S.C. 3507(h). In response to the 
Commission's invitation in the notice of proposed rulemaking to comment 
on any potential paperwork burden associated with this regulation, no 
comments were received.
    As described in detail above, the Commission received comments 
concerning the substance of the Rule 4.14(a)(9). In recognition of 
certain comments received, the Commission has decided not to adopt 
proposed paragraph 4.14(a)(9)(iii) as part of the final rule. This 
modification, however, is not expected to change the information 
collection burden information as described in the notice of proposed 
rulemaking.

C. Administrative Procedure Act

    The Administrative Procedure Act provides that the required 
publication of a substantive rule shall be made not less than 30 days 
before its effective date, but provides an exception for ``a 
substantive rule which grants or recognizes an exemption or relieves a 
restriction.'' 5 U.S.C. 553(d). Because Rule 4.14(a)(9) grants an 
exemption from registration, the Commission has determined to make the 
rule effective immediately.

List of Subjects in 17 CFR Part 4

    Advertising, Brokers, Commodity futures, Commodity Pool Operators, 
Commodity Trading Advisors, Consumer protection, Reporting and 
recordkeeping requirements.

    For the reasons stated in the preamble, the Commodity Futures 
Trading Commission amends 17 CFR part 4 as follows:

[[Page 12943]]

PART 4--COMMODITY POOL OPERATORS AND COMMODITY TRADING ADVISORS

    1. The authority citation for part 4 continues to read as follows:

    Authority: 7 U.S.C. 1a, 2, 4, 6b, 6c, 6l, 6m, 6n, 6o, 12a, and 
23.

    2. Section 4.14 is amended by removing the word ``or'' at the end 
of paragraph (a)(5), by removing the period at the end of paragraphs 
(a)(6), and (a)(7) and adding a semicolon in its place, by removing the 
period at the end of paragraph (a)(8)(v)(D) and adding ``; or'' in its 
place, and by adding paragraph (a)(9) to read as follows:


Sec. 4.14  Exemption from registration as a commodity trading advisor.

    (a) * * *
    (9) It does not engage in any of the following activities:
    (i) Directing client accounts; or
    (ii) Providing commodity trading advice based on, or tailored to, 
the commodity interest or cash market positions or other circumstances 
or characteristics of particular clients.
* * * * *

    Issued in Washington, D.C. on March 3, 2000, by the Commission.
Jean A. Webb,
Secretary of the Commission.
[FR Doc. 00-5823 Filed 3-9-00; 8:45 am]
BILLING CODE 6351-01-M